Citadel's Blood in the Street

Posted by: Matthew Goldstein on December 11, 2008

The end of the year can’t come soon enough for hedge fund magnate Ken Griffin, whose main investment portfolio at Citadel Investment Group continues to pile up big losses.

As of Dec. 5, Citadel two main funds were down an eye-popping 49.5% for the year, according to a posting on the hedge funds website obtained by BusinessWeek. Citadel’s main hedge funds were cruising along for much of the year until September, but they sprung a leak after Lehman Brothers filed for bankruptcy on Sept. 15. Ever since the funds have been taking on water and are now looking at a long road back to recovering their past luster.

The recent performance numbers for the Kensington and Wellington funds are simply ugly. In September, the giant portfolios lost about 16% of their value. In October, the funds plunged another 22%. The declines ameliorated a bit in November, with the funds falling 14%. And things are actually better for the funds through the first week of December: the portfolios are down just another 2.5%. Then again, December is far from over.

In fairness, it’s not been all bad news for Griffin. Two smaller funds managed by the one-time $20 billion hedge fund conglomerate are both up 43%.

There’s been speculation that Griffin may look to wind down his two big funds in light of the dreadful performance, much of which has been attributed to the poor performance of their convertible bond investments. But sources close to Citadel have denied that’s even under consideration. These sources point that Citadel has better source of funding than other hedge funds and can weather the financial crisis. Two years ago, Citadel raised cash through the private sale of bonds.

Even if Citadel survives, one thing that’s no doubt been shelved is the hedge fund’s plan for an initial public offering. That’s something it was openly flirting with eariler this year.

Reader Comments

joe

December 11, 2008 12:03 PM

Hedge funds do not create wealth. When they made money, the money comes from other investors. It's good news for everyone else when they are down.

Justin

December 11, 2008 1:44 PM

Joe, im not sure you know what your talking about.

Jimbo

December 11, 2008 2:10 PM

Citadel needs to throw in the towel. Ken Griffin has become a total embarrassment.

trader

December 11, 2008 2:22 PM

Well its definitely true that some people make money on the expense of other people's losses.... red & black go side by side....

Lord of the Flies

December 11, 2008 2:54 PM

Classic rule of economics - put 100 random idiots on an island with 100 of cash each, by the end of short period (Remember, we are all dead in the long run), some will be rich and collect most of the money, some will be working for those rich/controlling people and some will be poor (having aready spent all their funds) and foraging for sustenance.

Is it any different now?

THe only real question is why don't the shareholders of GM, Ford, and Cerebus all get zero out of the new deal instead of keeping their stock - even at a super depressed price. they stand to come back to some extent over time and should be zero value already.

BearMarket

December 11, 2008 3:25 PM

Griffin is one of the worst traders in history. He is down 50%. He should be fired from the company.

Citadel is a trash fund. Shutdown this cash-burning company.

BearMarket

December 11, 2008 3:42 PM

http://en.wikipedia.org/wiki/List_of_trading_losses

Griffin should be placed at the top of the list. He has lost billions of dollars. Why is he still CEO?

SV

December 11, 2008 6:32 PM

They charged 2 and 20 as fees. Now they are down over 50%. They should give money back to investors from previous years to make up for the losses.

Pete

December 11, 2008 6:43 PM

BearMarket -
You have 0 idea what you are talking about. Ken Griffin built from scratch in his dorm a math model that ended up as Citadel, making himself a billionaire. Is Citadel down? Yes. Is it down considerably more than the market or other hedge funds?
He created many of the dollars that are now lost. How many billions have investors begged to put under your management?
As for "firing" him...He's the founder, CEO and largest individual holder, you moron...he does the firing.

abra

December 11, 2008 9:48 PM

because he owns the firm you dumbass.

John Marc

December 11, 2008 11:59 PM

Matthew Goldstein,

WOW!!! I can't believe the crap you are allowed to print. Why isn't it compared to the market or the "HIGHLY REGARDED" endowment funds of Harvard and Yale?

Because of the way this is written you have enticed the idiots to come out and add their nonsensical comments such as - Bear Market "Griffin is one of the worst traders in history" and "... Why is he still CEO?"

Also please ask you Managing Editor to resign and replace himself with someone from Fortune. There used to be quality articles on this site and now it is crap.

I have just decided not to visit this site anymore because of articles like this and the "Novels" you put on the site that go on for 7 pages.

Thank you from a former reader.

BigBear

December 12, 2008 11:20 AM

@Pete
Other hedge fonds have not lost so much money (most only -10% or so). On the contrary, the ELITE hedge funds manager have even earned billions this year like this guy from renaissance technologies.

I don't understand why someone can be so bad and lose 50% of the capital. This absolutely incredible. Only a absolute beginner can lose so much money.

This is not trading. This is GAMBLING! Citadel should be closed or moved to Las Vegas.

Get your money out of this trash fund.

Citadel is like a dead horse. Stop riding it. Chikago is full of Citadels blood.

The government should close the fund before it is too late.

BigBear

December 12, 2008 11:32 AM

I will ask Obama to shutdown the company because it is very likely that the remaining 50% of the capital will also be lost.

BigBear

December 12, 2008 11:49 AM

Hahhaahahahahah... down 50%! This is really embarassing!! Shame on Citadel.

IsThisLegal

December 12, 2008 12:00 PM

There are investigations about cash-transfers of Citadel. Hahahhaha

"...The trustee seeks to recover the "fraudulent transfers" of Sentinel securities to Citadel. The trustee is also suing Goldman because it's the immediate transferee of the securities from Citadel..."

http://www.chicagotribune.com/business/chi-biz-citadel-golodman-sentinel-dec04,0,6014758.story

GAME OVER

GAME_OVER

December 12, 2008 12:00 PM

SHUT IT DOWN!!!

SHUT IT DOWN!!!

SHUT IT DOWN!!!

Neal

December 12, 2008 12:07 PM

Ken Griffin is very, very smart, smarter than his own investors certainly. If you read other articles you would note that his personal fortune is largely unaffected by the downturn in his own funds. That's because his money is in the smaller funds that are up for the year, reportly more than 40%. Those are the funds that do the market making and long/short equity trades. Only a select few, not even the employee funds, get in there.

One thing to watch is: Griffin always gets paid. His two big funds, the cash cows, are down nearly 50%, he doesn't get paid until they reach their highwater mark again. What does he do? He closes them, creates 2 new funds to 'buy' their assets, which he still considers significantly undervalued, and establishes a new high water mark, effectively erasing the losses as far as he is concerned.

The 2 and 20 quoted above is incorrect, it's more like 8 and 20. See: http://www.chicagotribune.com/business/chi-citadel-operating-expenses-dec11,0,4483286.story. Investors in Citadel pay all the expenses, management absorbs none. This year Citadel is paying back some of their expenses, probably out of embarassment, but they promise not to repeat that exercise in fairness next year.

One thing not mentioned is that Griffin got rid of all the people who made Citadel the premier convert-arb shop on Wall Street. When converts went out of style a few years ago he kicked them onto the street. See stories referring to David Snyderman, the previous head of their convertibles trading. That's the downside of Griffin's treatment of employees. When he really needs them they won't return because they can't stand him.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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